South Africa’s defence and aerospace industry forms a major part of the country’s high-technology manufacturing and services sector. Moreover, the high-level skills it has developed and is maintaining are benefitting other sectors of the economy as well. According to the South African Aerospace, Maritime and Defence Industries Association (AMD), the local aerospace and defence sector had an annual turnover estimated at R19-billion in 2015, up from R15.8-billion in 2014 and R13.3-billion in 2013. Of the R19-billion earned in 2015, 62% came from exports.
The country’s single biggest defence group is State-owned Denel, which had a turnover of about R5.6-billion in 2015. In total, there are currently 79 member companies in AMD.
The sector “has consistently provided meaningful skilled employment opportunities for about 15 000 highly skilled engineers, technicians and artisans – many of them contributing to key national projects in space, transportation, rail safety, mining, construction, power generation and telecommunications,” highlights AMD executive director Simphiwe Hamilton (5 000 of these jobs are in the Denel group). “Conservatively, the sector is estimated to have a multiplier factor of 1:4 in terms of indirect additional job opportunities in the wider manufacturing and associated services sector, thus supporting at least 60 000 further skilled jobs in the economy.”
Further, during 2015, the sector invested some R1.7-billion in research and development (R&D) and technology development. AMD, which represents the local aerospace and defence industry (both public sector and private sector), actively works with the Department of Science and Technology (DST), the Council of Scientific and Industrial Research (CSIR, which falls under the aegis of the DST) and the Technology Localisation and Implementation Unit (formed by the DST and hosted and supported by the CSIR) to develop better coordination between local R&D projects. In parallel, AMD also works with the R&D units of the Department of Defence (DoD) and Armscor (the DoD’s acquisitions, disposals and R&D agency) to ensure industry and government R&D programmes are complementary. Close relations between the industry and the DoD and Armscor also facilitate applied research, resulting in an improvement in existing systems and services and helping the development of new ones. In broad terms, major areas of current local R&D are additive manufacturing (3D printing), titanium beneficiation and radar technologies (especially synthetic aperture radar).
Challenges and Concerns
Even so, the industry faces significant challenges and is displaying certain weaknesses, quite apart from the need to maintain very strict and high standards in terms of technology, manufacturing standards and operational performance. “The biggest weakness is that the South African National Defence Force (SANDF) does not buy enough of the industry’s products and services,” highlights independent defence analyst Helmoed Heitman. “This is hampering the development of new systems. You cannot just keep selling older designs! There is very little really new that has been developed over the past ten years. If you look at the export figures, the bulk of sales, except for armoured vehicles, is from local companies that are majority foreign-owned, which are able to market their products through their parent groups’ global sales networks and are developing new products with funding from their parent companies. But companies dependent on local business are doing less well. Skilled engineers are drifting away, either to other sectors in South Africa or to foreign defence firms.”
Hamilton identifies four main challenges facing the industry in South Africa. “By its nature, the creation of defence products and capabilities demands high and constant R&D investment for the creation of new science and technologies and equipment destined for a demanding client environment,” he emphasises. “Within a South African context, this fundamental aspect of a viable and sustainable local defence industry is impaired by the lack of adequate funding and availability of suitable skills.”
A second challenge is that the international defence business is highly political. The South African industry needs the conscious and committed support of the South African government in its marketing activities in foreign countries, whether these are new or existing markets. A third, related, but distinct, challenge is the current inefficiency and ineffectiveness of the country’s arms control processes, which delay the issuing of export permits, frustrate customers and damage the South African industry’s reputation as a reliable supplier.
A fourth challenge is rooted in the current nature of much of the local defence sector. There is a definite bias towards the design, development and production of electronic subsystems. “This means the South African defence industry has to compete with and dislodge established players in a foreign original-equipment manufacturer’s (OEM’s) supply chain and this is often viewed as a major risk by the OEMs, while also conflicting with possible national security and industry considerations,” he points out. “With the bulk of the local industry’s products being in electronics and related subsystems, as well as components, international joint ventures are critical to its sustainability.”
“I am not sure this is a problem,” observes Heitman. “Consider the Indian and Malaysian Air Forces buying South African radios and electronic warfare equipment when they could buy [these] from anywhere in the world. Consider also the exports of South African Identification Friend-or-Foe equipment.”
Another issue is that areas in which the local industry was once an undisputed world leader are now seeing greatly increased international competition. This is especially true with regard to armoured and mine-protected personnel carrying vehicles (APCs) and unmanned air vehicles (UAVs).
Concerning APCs, there are two market threats. One is the significant increase in the number of countries and companies designing and producing such vehicles (even if these vehicles are not as good as the South African products, their production means that their home countries are no longer in the market for foreign products and so the potential market shrinks). The second is the disposal, by the US Army and Marine Corps, of what they designated as mine-resistant ambush-protected (Mrap) vehicles, acquired for the wars in Iraq and Afghanistan but no longer required and now being offered, cheaply or even for free, to American allies. Perhaps ironically, many of these Mraps were designed in South Africa and quite a few built here.
With UAVs, there has been massive investment in this sector by an ever-growing number of countries. In comparison, investment in the sector in South Africa has been limited, hampered by declining local R&D budgets. South Africa’s cumbersome local UAV flying regulations are also getting in the way of developing the local civil market and producing and deploying new designs.
Good Ideas, Affordable Prices
There is, however, good news as well. The South African government has recognised the importance of the sector to the wider economy and the need to support it. The defence industry is recognised as an industrial sector under the Industrial Policy Action Plan. Within the framework of this plan, the aim is to augment the defence sector’s capabilities in engineering, manufacturing and support to fulfil local defence and security needs and to exploit export opportunities to the maximum. A further aim is to effectively support the development of local technologies and advanced manufacturing capabilities. Another objective is to bring new, especially broad-based black economic empowerment and small, medium-sized and microenterprise (SMME) participants into the sector, and secure sustainable jobs in the defence industry and increase its broader manufacturing support base. Another key aim is to vigorously expand the local aerospace industry to take advantage of increasing international opportunities, as well as develop a focus on the national space programme.
“AMD has, over the years, partnered with the South African government in creating an optimal trading environment for the local defence industry whilst also contributing to the opening of lucrative export markets,” reports Hamilton. “It is in this context that the association can justifiably assert that its has played a pivotal role and is partially responsible for ensuring that a world-class indigenous defence industry capability is maintained in a sustainable manner. With the South African government recognising the significant impact the defence industry can have on the wider economy, a number of initiatives have been taken over the last few years, which aim at directly supporting aerospace and defence companies. And, despite a shrinking budget and thus limited availability of discretionary expenditure, our Department of Defence and the SANDF remain the South African defence industry’s primary client. This symbiotic relationship is of paramount importance for the drive to grow export sales, as the success of international sales is largely linked to use of such equipment by our own forces.”
“It is necessary to stress the importance of equipment being in service in the parent country’s armed forces for other to buy it,” points out Heitman. “They want to be sure that it works, that it will be supported for 20 to 30 years and that there is an OEM able to assist with upgrades, integrating weapons and so on.”
There is much misunderstanding of the economic impact defence projects can have. Heitman cites the case of the Denel Rooivalk attack helicopter, which cost R6.25-billion to develop and manufacture (including the costs of developing and integrating its weapons). This is usually seen as an expensive commercial failure (but a technological and operational success) because only 12 production examples were ever built (as well as four prototype and preproduction aircraft) and no export orders were ever gained. But the export of subsystems and weapons developed as part of the Rooivalk programme earned the country R15-billion by the end of 2013. This figure was split across a number of local aerospace and defence companies, both public and private sector, including Aerosud, ATE (now Paramount Advanced Technologies), Denel Aerostructures, Denel Dynamics, and the optronics company now (after a number of name changes, owing to changes in ownership) called Hensoldt Optronics.
The local industry also retains key strengths. “Its biggest strength remains its ability to come up with good ideas at affordable prices,” stresses Heitman. “We can develop things here more cheaply than anyone else can.” Denel Dynamics, for example, remains a world leader in certain categories of guided missiles and other guided weapons. Another example is Reutech Radar Systems, whose RSR210N air/sea surveillance radar is fitted to the frigates of the Royal Norwegian Navy.
“Our members have persistently provided high-tech solutions at competitive prices and world-beating standards,” affirmed Hamilton. “Their continued reinvestment into their capabilities has secured the retention of local orders while growing export orders in a highly competitive market environment. Through this, local industry has underpinned high-end technology and skills development, job creation and retention of strategically relevant technologies and manufacturing capabilities. The size, ingenuity and interdependence of the South African defence industry allow it to respond swiftly and flexibly to new client requirements, with some developments reaching fruition in as little as six to nine months from inception.”
The local industry has a very important diplomatic/political strength as well. South Africa’s foreign policy outlook has been and remains guided by its nonaligned approach and therefore maintains friendly relations with all key global role-players. This gives the local industry an ‘independent’ status as a reliable source of defence technology, products and services. Of course, all South African defence exports are conducted in line with the country’s arms control legislation, overseen by the National Conventional Arms Control Committee and by any relevant binding United Nations Security Council resolutions, as well as international law.
For the future, the industry, supported by government agencies, is seeking to further the transformation of the sector. In particular, the DoD’s Defence Technology Enterprise Development programme, managed by Armscor and the CSIR, aims to create a least 20 black-owned defence SMMEs over the next five years. The industry is hopeful that, in the coming years, at least some of the recommendations of the 2015 Defence Review, aimed at stabilising the situation of the SANDF and then rebuilding its capabilities, will be implemented. Government’s maritime- focused “blue economy” Operation Phakisa also offers opportunities, most obviously for new ships planned for the South African Navy (Project Hotel, for a new survey ship, and Project Biro, for new patrol vessels); and, on the aerospace side, the upgrading of the Rooivalk attack helicopter and the possible development of an improved, new-build Rooivalk Mark 2.
However, for the local industry to benefit properly from these and other future projects and opportunities, in an increasingly tough global market, three essential initiatives need to be implemented. Firstly, the local content targets for all acquisition projects must be strictly enforced, particularly in “designated areas” such as hand-held radios and shipbuilding. Second, there needs to be coordinated “fleet” acquisition, involving interdepartmental coordination, across government, with a presumption in favour of the purchase of local products and services. “Lastly, [there needs to be] meaningful African partnerships in which African countries enable market access whilst the South African defence industry enables technology transfer,” stated Hamilton.